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Iran Accuses U.S. Of Pushing Up Oil Prices

U.S. President Trump has made a deal with some OPEC producers to keep prices high as they support the U.S. economy and boost federal taxes. This is what Iran’s Energy Minister Bijan Zanganeh said on state TV this week as quoted by Bloomberg, adding that Trump was engaging in “shenanigans” on the oil market.

It’s not too hard to guess which the OPEC producers Zanganeh mentioned are. Saudi Arabia has been a strong opponent of the Iran nuclear deal and was now quick to offer to fill any gap that new U.S. sanctions would leave on international oil markets by curbing Iran’s abilities to export its crude.

Saudi Arabia is also the most vocal supporter of ever-higher prices, as it prepares to list its state energy giant Aramco and struggles with a much too high breakeven price for its crude.

Iran, on the other hand, has repeatedly called for more “reasonable” prices, which for the Tehran officials are prices between US$60 and $65 a barrel. Like many analysts, Iran is concerned that pricey crude oil will start affecting demand, and not in a good way.

Now, some forecast oil could reach US$100 a barrel by next year, with one hedge fund manager, notorious Pierre Andurand, going as high as US$300 a barrel. Apparently, according to the bull camp, oil can reach US$300 without hurting demand enough to start sliding back down. Related: U.S. Shale’s Refining Crisis

This stance is questionable, to say the least. Already some experts, such as Reuters’ John Kemp, are warning that the imposition of new U.S. sanctions on Iran would spur other OPEC members into increasing their production levels, which would effectively put an end to the OPEC production cut deal. Should this happen, prices will not get even close to US$100, they will start sliding back to US$60.

Another group of people tracking events in the oil world believes that sanctions will not have a serious negative effect on Iranian oil shipments to its biggest clients. China has stated its commitment to Iranian imports, and as an added benefit for both, is ready to settle these imports in yuans, undermining the dominance of the greenback. Other importers, including staunch U.S. allies Japan and South Korea, are also looking for ways to keep on buying Iranian crude.

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The Iranian oil minister Bijan Zanganeh got it wrong again. President Trump’s decision to walk away from the Iran nuclear deal has nothing to do with oil prices and everything to do with pleasing Israel. His decision has the hallmark of having been made in Tel Aviv like the decision to recognize Jerusalem as the capital of Israel.

The Iranian minister’s views on what level oil prices should be namely, $60-$65 a barrel are well known. His views have been prompted by many factors: one is to show the world that he has influence on the decision-making inside OPEC when in fact, it is Saudi Arabia supported by its allies inside the organization that has the final say on oil prices and levels of production inside OPEC.

Second, Iran’s budget is 60% dependent on the oil revenues compared with 90% for Saudi Arabia. So he doesn’t want the Saudi economy to get stronger at a time of escalating tensions between the two countries. Third, by calling for a $60-$65 oil price, the Iranian oil minister wanted to sound reasonable at a time when Iran will not benefit much from rising oil prices since it can’t raise its production beyond the current 3.75 million barrels a day (mbd).

Contrary to analysts’ and bank’s projections, Iran will not lose a single barrel of oil exports. More than 75% of Iran’s oil exports go to China and the Asia-Pacific region while the remaining 25% go mostly to the European Union (EU). China, India and other Asia-Pacific region countries as well as the EU are not going to comply with US sanctions and reduce their imports of Iranian crude.

And while Saudi Arabia would welcome the opportunity to boost production to offset a so-called decline by Iranian oil exports, it has to balance the benefits from increased production against a collapse of the OPEC/non-OPEC production cut agreement. A collapse of the agreement risks bringing back glut to the market with very adverse repercussions for the Saudi economy which suffered most from the 2014 oil price crash.

On balance, I believe Saudi Arabia will not risk the collapse of the production agreement which it has worked tirelessly with Russia to bring it into existence for a short-term benefit just to score points against Iran and to please President Trump.

The poor people of Iran who have to deal with an antiquated uneducated dictator . USA presidents face big challenges in rising gasoline prices. It certainly does not help their popularity, perhaps more than any other issues. Why would Trump risk losing popularity so a minority of his people benefit ? The Iranians are diffusing the real reason the USA had to terminate this deal . They are hurling missiles into Israel and Saudi and blaming others for the sanctions which will once again cripple them and potentially end the reign of this dinosaur state .

John Brown on May 11 2018 said:

Iran is run by morons. The U.S. Government is not trying to push up oil prices. Trump just hammered the industry in the last two weeks about unreasonably high prices, and again this week the U.S. rig count is on fire. U.S. shale oil and gas is going to exceed everybody's expectations as Saudi Arabia, OPEC/Russia keep trying to push the price of oil higher and higher. The reality is folks that there is no reason that oil should be higher than $40 a barrel, except that Saudi Arabia, aided by Russia, is pushing them higher for its own reasons. Namely the IPO of ARAMCO and its own budget deficit. Russia gets more money to spend on making the world a more dangerous place so it goes along. I have to say I'm surprised that Iran realizes that oil prices moving up toward $100 a barrel are incredibly stupid for even medium and longer term oil price stability. The USA is in a Gold Rush to pump out more shale oil and gas, and it will exceed all production expectations, and the USA isn't the only place where NON-OPEC Russia producers are rushing to produce more. High oil prices also give renewable energy a huge boon to continue to grow and increase market share while reducing costs to be more competitive with oil and gas even when the price drops. Saudi Arabia and Russia with OPEC have a window in which they can idle enough production to push prices higher but the higher the price the tighter and faster that window narrow. Fortunately, higher oil prices aren't as bad for the USA as they were in the past, not with the oil industry booming, and the U.S. exporting more and more oil, but in net higher oil prices still hurt the U.S. and will slow demand, but there are simply more alternatives then there were in the past, and Saudi Arabia/Russia/OPEC are going to find that out.

snoopyloopy on May 11 2018 said:

"Apparently, according to the bull camp, oil can reach US$300 without hurting demand enough to start sliding back down."

Any part of the bull camp thinking that the market can get to $300 without hurting demand is delusional. $300 oil would absolutely decimate the economy while also killing demand in basically all sectors.

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